The dollar remained range bound against the EUR (1.5594-1.5690) and the JPY (104.09-104.82). Equity market ended the session in negative territory. Initially, the S&P500 rallied 0.6% from its lows, taking out the mark at 1400 points before falling back. During New York trading hours, oil remained in a narrow 118.52-119.49 range.

Despite all its well-known detractions, we view the dollar as an interesting relative value play in the G10 space should US growth stabilize. Stable US growth should be sufficient to keep EURUSD aiming in the direction of our 1m and 3m forecasts of 1.55 and 1.47, respectively. The euro we see eventually undermined when Eurozone inflation peaks; forward-looking indicators have weakened already. Accordingly, we reinstated a short EURUSD trade recommendation on Apr. 28, entering at 1.5665 and targeting 1.5200.

Ahead on April 29, we forecast the S&P/Case-Shiller Home Price Index to drop in line with market expectations. At -12%, the decline is expected to be pronounced (prev -10.7%). Other than housing however, buyers of US assets may take comfort in stabilising conditions. We forecast flat Q1 GDP growth, due on Apr. 30. The shallow recession we forecast will only have begun in Q2. The Fed is expected to cut rates by 25bp on Apr. 30, and at the same time signal that the time of aggressive easing is over.

The EUR remains under pressure as inflation showed signs of easing in five German states in April. Although energy and commodity prices remain at record highs, the states registered m/m declines in prices, against market expectations of a 0.2% m/m rise for the country. Provisional national CPI for April is due later today and a y/y print of 2.8% is expected, after 3.1% previously. We believe inflation across the Eurozone will begin to show signs of peaking and head towards target across the next few months. As such, the risk of ECB hikes is minimal and the euro will come under increasing scrutiny as the market continues to re-price rate expectations just as the Fed begins to contemplate a pause. ECB President Trichet and Governing Council member Mersch were both on the wires overnight, reminding markets of upside price pressures stated at the April policy meeting. In other data, German GfK consumer confidence unexpectedly rose to 5.9, vs. expectations for a decline to 4.4 from 4.8 previously. Our economists note the rebound in the leading indicator can be attributed to an improvement in households' employment expectations, reflecting a labour market which has continued to improve over the past few months. The European Commission published its Eurozone forecasts and predicted growth to fall to 1.7% this year, from 1.8% previously. Short-term inflation pressures remain a concern, but the commission believes CPI peaked in Q1 this year. The rise in the EUR was adjudged to have hurt exports and warned against future gains should Fed continue easing.

Elsewhere, SNB's Jordan said this morning that current rate levels look appropriate for the foreseeable future, but that high oil prices might prolong the phase of high inflation. However, he highlighted that he does not expect current levels in oil to be sustainable. Overall the latest commentary from SNB officials does not constitute a change in rhetoric, and supports the central bank's on-hold policy stance.

April Consumer confidence (UBSe: 2.1, cons: 1.5, last: 2.5) and Q1 manufacturing confidence (UBSe: 0.0, cons: 0.0, last: 2.0) will be released on Tuesday. Also, April economic tendency survey is likely to show a further deterioration in economic sentiment amid rising fears of slowing global growth. March retail sales report is also expected to show weaker growth (cons: 0.3% m/m / 3.6% y/y, last: 1.7% / 4.6% y/y). Last week, the accompanying statement to the Riksbank's decision to keep rates on hold suggested rates will remain steady until the year end. Our economists, however, believe this is a too optimistic projection and expect the central bank to embark on an easing path in H2. This should cap recent SEK gains, although if less upbeat sentiment in the Eurozone persists, EURSEK will continue to trend towards our 3 month target of 9.25. Our 1 month EURSEK forecast is 9.35.

Japan's retail sales climbed 1.1% y/y, stronger than consensus for a 1.0% gain but down from the previous month's 3.2% y/y reading. Fuel and food sales were among the key drivers, hence strong inflation over the past month may have inflated actual growth numbers. On the political front, the ruling LDP suffered a by-election defeat in Yamaguchi prefecture. This was Prime Minister Fukuda's first national election and the result has further weakened his leadership. Our economists warn that the DPJ plan to submit a vote of no-confidence against the Prime Minister in the Upper House - where the DPJ enjoys a majority - after May 12. Although the vote will be non-binding, the by-election result and further political challenges have raised the possibility of Fukuda having to resign in the coming months. On the monetary policy front, we and the consensus expect the BoJ will leave rates on hold on Wednesday, April 30. Japan's March nationwide core CPI (released Friday April 25), came in at 1.2% y/y versus 1.0% y/y in Feb. Although consumer prices were in line with economists' consensus, the market was still concerned that it was the highest inflation print in almost a decade. That helped spur a sell-off in JGBs. Although we do not expect this to nudge the BoJ into resuming its tightening cycle, broad inflationary pressure is hurting global bond markets, perhaps to the benefit of stocks. Increasing risk appetite will likely continue to weigh heavy n the yen.